This guy does a superb job of China economic reporting. This report, on the eve of the CCP Plenum, portrays enormously more “off the books” debt than just the residential bubble.
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China prints it’s own currency and can force more labor out of the Uyghurs to pick up the slack. I bet they’ll eventually get out of it.
Who would have guessed that the US would successfully weather the Bush Economic Collapse in 2008 with negative interest rates and a rapid, off book expansion of the Treasury’s balance sheet?
We’re living in an MMT (Modern Monetary Theory) world. Conservative, Milton Friedman economics has been constraining growth and prosperity for too long.
intercst
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Yes, but it is not just the indebtedness; the levels of profound corruption mixed with dogmatically shaped economic ignorance have left them with wreckage across much of the expensive mal-investment.
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On the one hand not enough Uyghurs and you are correct anyway. On the other hand the People of the Han need the jobs.
There are a bunch of problems in China, but at its core it’s about the massive overdevelopment of real estate for the past two decades. It sparked a mania not unlike what the US experienced in the 2000-2007 period, although the mechanisms for it were quite different.
According to this NYT story, there are tens of millions of unoccupied homes and apartments, bought by up-and-coming Chinese families as a pathway to wealth and the middle class, promoted by local officials because they funded services with the revenue from land sales. Now that there’s a real estate bust, those families are unable to find renters, and/or are unable to sell because 1) they would take such a loss they would have an albatross debt for years, or 2) nobody wants to buy because prices keep going down (the deflation paradox), and so they’ve reached terminal stasis.
There’s a new party meeting coming up, yo can be sure this will be Topic A, and there will be much handwringing and great plans laid out, but it’s a real question about whether the Chinese can escape this debt trap. It’s not only affecting the housing market, consumers are cutting back because they are now over-mortgaged, and it’s taking a toll everywhere across the economy. Growth in the last quarter was a meager 0.7%.
Anyway, tiny ripples make for a big wave, maybe:
China’s Economy Slows Sharply as Housing Troubles Squeeze Spending
After a strong start to the year, spending has slumped as a real estate downturn weighs on consumers. Communist Party leaders are meeting this week to discuss what to do about it.
Economic growth slumped in China through the spring after a strong start this year, according to data released on Monday, as a real estate crash caused consumers to spend more cautiously.The latest growth statistics for the world’s second-largest economy, covering April through June, put further pressure on the Communist Party as its leaders gathered on Monday in Beijing for a four-day conclave to set a course for the country’s economic future.
In a country known for strict controls on information, the Chinese government is maintaining a particularly tight grip ahead of the party gathering, known as the Third Plenum, which typically takes place every five years. China’s National Bureau of Statistics canceled its usual news conference that accompanies the release of data and Chinese companies are mostly avoiding the release of earnings reports this week.
China’s economy grew 0.7 percent in the second quarter over the previous three months, below the expectations of most economists.
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This may end up becoming the bigger problem for China. The localities were funding REAL services using the money that was coming in from developers. Now that money flow has slowed to a trickle (and to zero in some places) and they can’t fund those services anymore.
China has taken too long to claim the supply side econ mantle. The EU took it and a few decades from now the EU will get demand side econ back.
China was only getting wealthy because of demand side economics. There was nothing special about China otherwise.
The trade deficit with China has narrowed and narrowed repeatedly for months. We are getting demand side economics.
It takes a turde(for our censor) with nothing upstairs to hope for supply side economics. Impoverishing the US should not be a goal.
China amazed the world under Deng Xiaoping, as he liberated China’s educated, hard working, ambitious population to build a modern economy. The children of that economy also wanted political liberation, the elders panicked, liberation was crushed, and (no surprise!) corruption took over.
Xi realized the shyte was going to hit the fan and has gone whole hog for social control above all else, and apres moi le deluge for the rest.
The real estate bubbled insanity was simply the biggest fastest carbuncle. There are many more (ICBMs loaded with water instead of rocket fuel, huge roadway bridges collapsing, massive water projects failing…) coming down the pike.
And the kids are taking shelter in theories of “Lying Flat” and entering an “Age of Corruption and Decay”.
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Our “Me Generation”. Conquer them with their own stupidity.
Ask them if they love themselves?
The opposite of did you beat your spouse last night but the same thing.
We only got 31 years of demand side economics. The EU got 40 years of us biting down hard on supply side economics like dunces.
Of course, even if 20% of their kids choose to “lie flat”, they still have a large multiple compared to us of smart people hacking our systems, stealing tech secrets, designing nefarious stuff, and just plain old designing regular stuff that the world will buy.
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That was a wild video. I had it on in the background so I didn’t catch all the details but very damning on the Chinese economy.
Exports are doing well:
It is a one-off read the article.
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All true, but you left out the giant panda in the room, the rapid aging and shrinking of the population. China built an economy more dependent than most on an expanding working class population that would expand domestic consumption. Very few nations, if any, have figured out how to grow an economy when the working population is in decline.
Which makes it unlikely that the Chinese are going to be motivated anytime soon to have more kids.
That concept of “lying flat” is interesting. Sounds much like what one had to do at most of the companies I worked for: “keep your mouth shut, except when singing the company song”. Even the most benign comment, or question, could be taken wrong by the big shot, who demanded absolute, blind, servile, devotion.
Steve
In fairness, that’s a most unusual situation, so there have been very few attempts because there have been very few opportunities to try it.
But we have managed to transition from an agrarian economy where most people lived on farms to an urban one where only a tiny fraction live/work there, and now to a suburban one where people are less constrained by geography. We have left the mandated nighttime behind with electric lights, we have expanded leisure time with leisure activities and discovered entirely new industries which propel the economies forward even more.
I don’t know what the answer will be (I expect shorter work weeks, even more leisure, perhaps guaranteed subsistence for all) but it will arrive, as always, in the nick of time and humanity will continue apace. The alternative, of course, is endless revolution, war, famine, pestilence. I prefer to be an optimist about it.
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It is a nonissue the inverted demographic.
China has problems admitting it will go over to supply-side economics. We had those problems in the 1970s. The government overreached under Nixon to avoid it. Ford and then Carter were poor at handling it. Carter appointed Volcker to the chairmanship, the dye was cast.
Central Europe seems volatile right now as the continent clamps their economics down into supply-side economics but years later the EU reclaims demand side economics in the cycle before China can.
We all take turns in this shell games making money and losing money.
Japan’s lost decades were a papered over supply side economics. The demographics were not the central part of the problem. The model is being misread.
It is important to think in macro terms not micro terms about the collective systems.
This is caused due to demographic change and one child policy.
China is going from a population of 1.4B people to 0.7B people so many empty buildings.
ALL developed countries are facing same issue of population collapse.
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Expand the working population by dictate.
This piece on the local news inspired me to take a look at the “Fair Labor Standards Act”.
The FSLA established the 40 hr work week, and time and a half OT pay rates, as well as limiting the sort of labor, as well as the working hours, of children.
There have been “improvements”.
This from 1986: In 1986, the Fair Labor Standards Act was amended to allow the United States Secretary of Labor to provide special certificates to allow an employer to pay less than the minimum wage to individuals whose earning or productive capacity is impaired by age, physical or mental deficiency, or injury
So, the old phartz forced back into the workforce by “PSTSSSAM” will be presumed to be slower and weaker than people in their 20s, and paid accordingly less.
And another 'improvement", from 2004: On August 23, 2004, controversial changes to exemptions from the FLSA’s minimum wage and overtime requirements went into effect, making substantial modifications to the definition of an “exempt” employee. Low-level working supervisors throughout American industries were reclassified as “executives” and lost overtime rights.
So everyone can be a “boss”, and not receive time and a half.
Of course, we now have a SCOTUS that would probably throw out the entire FLSA, relieving “JCs” of a whole host of “burdens”. Combined with “PSTSSSAM”, the workforce would thus be expanded to include all able bodied people from about age 15 to 85 or 90.
Steve
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To be fair, that drop in population will take 75+ years, and buildings wear out anyway over time. So those buildings would have been retired (demolished and something else rebuilt on that land) anyway over that period. So, if population is in decline, you simply choose to not do the rebuilding half of that equation. Or at least you choose to rebuild less of it.
The current problem is too many empty buildings RIGHT NOW. Much of that huge investment is rapidly going to waste. But I suppose overall it’s better for the world that China wasted their capital on empty buildings all over the place rather than military adventures all over the place.
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